Asian stocks extended the rally seen on Wall Street after slower-than-projected US inflation spurred bets the Federal Reserve will moderate its aggressive rate-hike path.
(Bloomberg) — Asian stocks extended the rally seen on Wall Street after slower-than-projected US inflation spurred bets the Federal Reserve will moderate its aggressive rate-hike path.
A benchmark of Asian equities headed for a second week of gains, boosted by a surge in Hong Kong-listed technology stocks.
The call by leaders in Beijing for more precise and targeted Covid control measures added to the updraft for Chinese shares.
US stock futures fluctuated after the S&P 500 climbed 5.5% on Thursday — the best first-day reaction to a CPI report in decades.
Government bonds rallied in Japan and Australia after Treasuries surged on Thursday in move that sent yields down by 20 to 30 basis points across the US curve.
Rates traders downgraded the odds of another three-quarter-point rate increase by the Fed in December almost to nil.
A Bloomberg gauge of the greenback held most of its 2% slide from Thursday, which was the biggest move since 2009.
The yen weakened against the dollar after leaping the most since 1998 on Thursday. The won jumped the most in more than two years.
The sentiment shift also helped crypto markets stabilize despite the turmoil surrounding crypto exchange FTX.
Headline US inflation came in at 7.7%, the lowest since January, before Russia’s war in Ukraine pushed up commodity prices.
More important for the Fed, the core measure that excludes food and energy slowed more than anticipated.
“Touch wood, we can kiss 75-basis-point hikes goodbye as long as incoming data allows, but with inflation likely to remain elevated, I suspect we’ll see rates above 5% next year,” said Matthew Simpson, senior market analyst at StoneX Financial.
“And the Fed will want more data before hinting at a lower terminal rate, even if markets behaved like rates were cut overnight.”
Still, Thursday’s intense rally only partially claws back steep losses for risk assets hammered this year by the Fed’s tightening.
The S&P 500 is still down 17% and the Nasdaq 100 is off nearly 30%, with both headed for their worst years since 2008. The MSCI World Index is down about 18% this year.
Fed officials appeared to back a downshift in rate hikes after a stretch of four jumbo-sized increases.
They also stressed the need for policy to remain tight.
Dallas Fed President Lorie Logan said it may soon be appropriate to slow the pace to better assess economic conditions. San Francisco’s Mary Daly said the moderation was “good news,” but noted “pausing is not the discussion, the discussion is stepping down.”
Elsewhere, oil headed for a weekly loss as China’s Covid policies weaken the outlook for demand.
Gold was on track for its biggest weekly gain since March.
Key events this week:
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose were little changed as of 12:02 p.m.
in Tokyo. The S&P 500 rose 5.5%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 7.5%
- Euro Stoxx 50 futures rose 0.2%
- Japan’s Topix index rose 1.9%
- South Korea’s Kospi index rose 2.9%
- Hong Kong’s Hang Seng Index rose 5.4%
- China’s Shanghai Composite Index rose 1.3%
- Australia’s S&P/ASX 200 index rose 2.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0191
- The Japanese yen fell 0.7% to 141.95 per dollar
- The offshore yuan fell 0.3% to 7.1716 per dollar
Cryptocurrencies
- Bitcoin fell 3.8% to $17,134
- Ether fell 5.5% to $1,249.38
Bonds
- The yield on 10-year Treasuries fell 28 basis points to 3.81% on Thursday.
Trading was closed for a holiday Friday
- Australia’s 10-year yield declined seven basis points to 3.66%
Commodities
- West Texas Intermediate crude rose 0.3% to $86.76 a barrel
- Spot gold fell 0.2% to $1,752.39 an ounce
This story was produced with the assistance of Bloomberg Automation
–With assistance from Georgina Mckay, Stephen Kirkland and Masaki Kondo.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
